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Stay Invested in America, US Dollar in Uncertain Times

Stay Invested in America, US Dollar in Uncertain Times

By    |   Friday, 10 January 2020 09:51 AM

The U.S. employment report shows nonfarm payrolls increased by 145,000 in December, following a downwardly revised 256,000 rise in November and below market expectations of 164,000. Notable job gains occurred in retail trade and health care, while mining lost jobs.

In 2019, payroll employment rose by 2.1 million, down from a gain of 2.7 million in 2018.

In December, average hourly earnings for all employees on private nonfarm payrolls rose by 3 cents to $28.32. Over the last 12 months, average hourly earnings have increased by 2.9 percent.

For investors, it could be helpful to recall some key points that matter in the jobs data:

Firstly, average hourly earnings are not wages. Wages are the money that is paid for the hours worked. A salary, on the other hand, typically defines a fixed amount that is paid, not necessarily for specific hours worked but for completing the duties of a job. https://finance.zacks.com/difference-between-earnings-wages-7113.html

Fact is that creating lower skilled jobs will lower average hourly earnings while leaving everyone better off.

Secondly, the recent growth in non-farm payrolls cannot carry on forever. Non-farm payrolls are above their sustainable pace of growth. At some point, this number will have to slow down. It may not be this month, it may not even be this quarter, but this cannot carry on unless mass immigration is encouraged, which is very doubtful under President Donald Trump.

In the context of all this, it could be also interesting to take a look at the details of the CEO Economic Outlook Survey for the fourth quarter of 2019 that is titled “Plans Moderate Slightly; CEOs Cautious Amid Trade & Global Uncertainty” and that came in at 76.7, a decrease of 2.5 points from the third quarter survey and well below the index’s historical average of 82.7, which is an indication of continued moderation in the pace of economic growth.

Key points of the survey are:

  • CEO expectations for sales increased 7.0 points to 98.6.
  • CEO plans for hiring decreased 5.5 points to 67.1.
  • CEO plans for capital investment decreased 8.9 points to 64.5.

One thing is for sure, today’s equity markets don’t reflect at all the views expressed in the CEO survey. I am still convinced that equity, but also forex markets and emerging markets, remain still too expensive…

But, for now at least, there is no reason at all for getting worried if the payroll number is somewhat weaker and certainly, I wouldn’t see that as a signal of economic weakness.

Overall, the picture is still of a labor market that continuous to be relatively strong. Weather patterns and a later than normal Thanksgiving holiday have added to the December’s payroll number.

There is also more general support.

President Donald Trump’s trade tariffs (taxes) have created uncertainty, which has stopped U.S. companies and indeed other companies from investing.

Investments, once made, tend to last 20 or 30 years, with the world trade order, capable of being turned upside down by a single tweet, it would be foolhardy to make long-term investments in the current climate.

However, hiring workers is a different proposition. A worker does not have to stay hired for twenty or thirty years. If demand is good, a sensible firm will make labor for capital substitution in an environment like this, which supports the stronger labor market and keeps consumers happy. The only thing companies have to watch out for is higher wage costs in the future.

Besides all that, over in Europe, Germany’s industrial production data that were released yesterday was better than expected rising 1.1 percent month-on-month in November, but still down 2.60 percent year-on-year. It would be very unwise to turn a single statistic into a “trend”, but these days, wisdom is not always present in financial markets.

Finally, in the interminable tedious EU-UK divorce process, yes, something has happened (!). This sounds unlikely, but it's true. The UK House of Commons has passed the Brexit bill, but it still has to pass the House of Lords and eventually Her Majesty the Queen will have to take some time off from “family matters” to sign the Brexit bill as well.

But still, does this mark progress? Yes, of a sort. What it does not do is to make the interminable tedious EU-UK divorce any less interminable nor any less tedious.

This is the start of a long, long process of negotiating trade deals and then subsidiary deals, as the BBC notes.

For investors, in my view, the U.S. and the U.S. dollar still remain some of the best places to invest.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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Investments, once made, tend to last 20 or 30 years, with the world trade order, capable of being turned upside down by a single tweet, it would be foolhardy to make long-term investments in the current climate.
dollar, america, invest, jobs
Friday, 10 January 2020 09:51 AM
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